Dollar Surge Caps Arabica Coffee Rally, But Supply Concerns Linger

LiquidityWizard · 2026-01-04T16:12:02+00:00

Arabica coffee futures fell, while robusta gained, influenced by strong dollar movements. Weather issues in Brazil and Indonesia impacted supply, despite a positive production outlook for coffee globally, signaling mixed inventory trends and potential price support.

LiquidityWizard

2026-01-04 16:12:02

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Arabica coffee futures took a beating on Tuesday, closing down 1.95 points (-0.55%), while robusta contracts posted modest gains of 62 points (+1.57%). Coffee prices briefly climbed to 2-week highs earlier in the session, but the surge evaporated as the dollar index jumped to a 1-week peak, triggering long liquidations across the coffee complex.

Weather Woes Keep Prices Supported

Despite the retreat, arabica coffee has backstopping from supply-side pressures. Brazil’s premium growing region, Minas Gerais, faced drought conditions this week, receiving just 11.1mm of rain—a mere 17% of historical norms. Meanwhile, Indonesia faces a more acute crisis: flooding in Sumatra has damaged roughly one-third of the country’s arabica farms and threatens to slash coffee exports by up to 15% in the 2025-26 season, according to the Association of Indonesian Coffee Exporters and Industry.

Inventory Picture Paints Mixed Signals

ICE arabica coffee inventories hit a 1.75-year low of 398,645 bags in November before recovering to 456,477 bags last week. Robusta stocks followed a similar pattern, dipping to a 1-year low of 4,012 lots before rebounding to 4,278 lots. The volatile inventory swings reflect broader uncertainty in the global coffee market.

Production Outlook Points to Abundance

Brazil’s crop agency Conab boosted its 2025 production forecast by 2.4% to 56.54 million bags, signaling ample supplies ahead. Vietnam, the world’s largest robusta producer, is ramping up even more aggressively—exports jumped 39% year-over-year in November to 88,000 MT, with full-year exports rising 14.8% to 1.398 MMT. Vietnam’s 2025/26 output is projected to climb 6% to 1.76 MMT, marking a 4-year high.

The Bigger Picture: Record Production Ahead

The U.S. Department of Agriculture projects global coffee production in 2025/26 will hit a record 178.848 million bags, up 2.0% year-over-year. While robusta output is surging 10.9% to 83.333 million bags, arabica production faces headwinds, declining 4.7% to 95.515 million bags. Ending stocks for 2025/26 are forecast to drop 5.4% to 20.148 million bags from 21.307 million in the current year—tighter supplies that could provide price support in coming months.

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